Consumer Choice and Demand. Chapter 9

Size: px
Start display at page:

Download "Consumer Choice and Demand. Chapter 9"

Transcription

1 Consumer Choice and Demand Chapter 9

2 Lecture Outline Applying The Standard Budget Constraint Model Two Additional Demand Shifters Time and Coinsurance Issues in Measuring Health Care Demand Impacts of Insurance on Aggregate Expenditures Other Variables Affecting Demand

3 Stylized Facts on Demand for Healthcare 1. It is not medical care services that consumers want, but health. Demand for medical care is a derived demand, so it is an input to produce health. 2. Consumers don t purchase health from the market, they produce it by spending time on health improving activities (e.g., better nutrition, exercise) in addition purchasing medical care inputs

4 Applying the Standard Budget Constraint Model Demand for medical care services is derived from the demand for health and how the consumer produces health Model assumptions Consumer is rational and perfectly informed There is no uncertainty about the future Important decisions are made as if the future were known with certainty

5 Logic of Consumer Choice Consumers can choose any affordable combination or bundle of goods, and from among these affordable bundles, they will choose the one preferred. The depiction of this choice requires two elements: The consumer s preferences described by a set of indifference curves The consumer s budget constraint described by the straight budget line

6 Consumer s Problem There are two goods: Healthcare, denoted visits A composite good, that represents all other goods, denoted OG The individual has an ordinal preference ordering over these goods that satisfies all the usual assumptions (e.g., transitivity) U(OG,visits)

7 The individual has a total income of Y, and the prices of the two goods are P OG and P v, which implies the following budget contraint P OG *OG+ P v *visits =Y The consumers problem is to pick the optimal quantities of the two goods subject to the budget contraint

8 Max U(OG,visits) subject to P OG *OG+ P v *visits =Y The solution to this problem can be obtained by differentiating the following U(OG,visits)+ λ(y - P OG *OG+ P v *visits ) We ll just work with diagrams.. The solution to the problem can be represented as the tangency between an indifference curve and the budget constraint.

9 Figure 9-2 Consumer s Equilibrium Analysis

10 Figure 9-2 Consumer s Equilibrium Summary of Figure: Budget Constraint = MN Analysis U 1, U 2 and U 3 represent indifference curves of higher and higher levels of utility. E represents the consumers utility maximizing choice.

11 Utility Maximization At point E the slope of indifference curve U 2 (marginal rate of substitution) is just equal to the price ratio P V /P OG. The marginal rate of substitution (MRS) is a measure of the rate at which a consumer is willing to trade other goods for physician visits and the price ratio is a measure of the rate at which she can trade other goods for physician visits.

12 Can take the consumers choice problem and use it to derive the demand curve for an individual As the price of physician visits change the budget constraint pivots out around point M. This pivoting is illustrated on the next slide and it causes a change in consumer choice from E 1 to E 2 to E 3, resulting in an increase in physician visits.

13 The Demand Curve Figure 9-4 Demand Curve Derived from Figure 9-3

14 Price Elasticity The responsiveness of the consumer s demand to price is measured by the price elasticity. Price elasticity, Ep, is the ratio of the percentage change in quantity demanded to the percentage change in price. Algebraically, it is:

15 As we will see, price elasticities are quite important. In a graphical sense, the more elastic demand is the flatter the demand curve, the more inelastic demand is the more steeper the demand curve. The price elasticity of demand provides information on how big a change in quantity would result from a change in price, the more elastic the demand is the bigger the change in quantity for a change in price.

16 From a policy perspective elasticities are quite important because healthcare is often financed through payroll taxes; also taxes on cigarettes and alcohol are often used to finance healthcare in many countries.

17 Income Elasticity The responsiveness of demand to changes in income is measured by the income elasticity. Income elasticity, EY, is the percentage change in quantity demanded divided by the percentage change in income:

18 Income elasticities are also important, from a policy perspective, An income elasticity > 0 means the good is a normal good An income elasticity between greater than 0 and less than or equal to 1 means the good is a necessity An income elasticity greater than 1 means the good is a luxury

19 Demand and Supply The demand is important to know, but to really understand the market we need to know the supply curve. Recall that the supply curve will be the sum of the individual producer s marginal cost curves Combining the demand and supply side we can talk about the market equilibrium and use it as a framework to think of the factors that can have effect on the demand and supply and hence the market equilibrium.

20 Textbook Demand Function for Medical Services/Healthcare D=f(Y, P complements, P subsitutes, insurance, tastes) Where Y is income, P complements is price of complements, P subsitutes is price of substitutes, insurance we will discuss in more detail later in the lecture, and tastes are changes in the preferences for healthcare that can reflect factors such as advertising or health promotion, aging and other demographic changes

21 An Increase in Demand

22 What increase demand for medical care services? If you have a normal good, then increases in income shift demand An increase in price of a substitute good A decrease in the price of a complement Consider the following example, suppose you have 3 goods: some cheese, a loaf of bread and a bottle of wine; Bread and wine are complements for cheese, so if the price of bread or wine falls there would be an increase in demand for cheese Olive oil might be considered a substitute for cheese, so

23 Insurance, which decreases the cost at point of purchase Changes in taste that would increase demand, health promotion (get your flu shot or other vaccination, get checked out for some sort of cancer), an increase in the proportion of older persons, an increase in the number of women who can have children, increases in the number of educated persons,

24 Textbook Supply function for Supply of Medical Care S=f(Technological change,input Prices,Price of related good, Size of Industry, Weather)

25 An Increase in Supply

26 What increases the Supply of medical care services? Technological improvements that reduce the marginal cost of providing medical services Decreases in Input prices (lower rents for office space, lower malpractice insurance premiums, lower wages for administrative and nursing staff that work for physicians) An increase in the price of a related good This don t exist in Canada, but do in other countries, e.g., the U.S., India.

27 Suppose you have two (or more) markets that physicians can supply medical care services to. Suppose that the price that physicians receive in one market falls, then physicians will supply more of their services to the market with the higher price Increase in the size of the industry, i.e., higher medical school enrollments, making it easier for foreign trained physicians to get licensed to practice medicine in Canada

28 Weather, has an effect on the supply of agriculture commodities (good weather generally increases supply of agricultural output).

29 Always label the diagram You may have to use supply and demand diagrams on tests and exams, please make sure that you label the diagrams; i.e., the axis, the initial price and quantity, how the curve shifted, and the new equilibrium price and quantity.

30 TWO ADDITIONAL DEMAND SHIFTERS-TIME AND COINSURANCE As an example of time cost effects, suppose that Ellen must go to the doctor for a 10-minute The Role visit. of Time It will take her 15 minutes to travel each way (30 minutes in all), 20 minutes to wait in the office, and 10 minutes with the doctor. Suppose further that the money cost of the visit is $25, and that she values her time at $10 per hour. Traveling and parking cost $5 total. The full price of each visit is then $40: One hour of time valued at $10 One visit priced at $25 Travel and parking costs at $5

31 Figure 9-6 Demand and Time Price for Physician Visits

32 How Might This Apply? Assuming that the poor have a lower opportunity cost of time than the well-to-do, one would predict that they would more likely tolerate or endure long waiting times in clinics or physician offices. At the same time, even those poor whose physician fees are subsidized (e.g., by Medicaid) must pay their time price. Wishing to increase physician visits among the poor, we might choose to reduce the time price by building nearby clinics and expanding outreach programs, a strategy that has been developed in many localities.

33 Role of Coinsurance Coinsurance effectively pivots the demand out from D 0 to D 1 and increases the demand for health care. Recall that insurance lowers the price at point of purchase, but the coinsurance will have more of an effect at higher prices.

34 Figure 9-7 The Effect of a Coinsurance Rate on Health Care

35 Market Effects For the market as a whole, coinsurance shifts the market demand curve from D 0 to D 1, resulting in an increase in the price of office visits and an in crease in the number of visits. Overall health expenditures will rise from P 0 V 0 to P 1 V 1. Figure 9-8 Market Impact of Coinsurance

36 ISSUES IN MEASURING HEALTH CARE DEMAND Overview In this section, the focus is on variables of interest to science and public policy. We examine how health care demand responds to money price, insurance coverage, and time price. In addition, we examine the effects on market demand of income and other variables.

37 Market Demand Functions, Expanded from Textbook version It suggested the following type of demand function for physician visits, referred to as V: V =f(p, r, t, P 0, Y, HS, AGE, ED, ) where P is price per visit, r is the patient s coinsurance rate, t is a time price, P 0 is the price of other goods, Y is a measure of income, HS is the patient s health status, and AGE and ED stand for variables such as age and education to reflect other need and taste factors.

38 OTHER VARIABLES AFFECTING DEMAND Ethnicity and Gender Many studies of demand examine the influence of race, and find that blacks tend to consume less medical care than the other large, self-identified ethnic groups when other factors are held constant. Females differ from males most clearly in their time pattern of medical care usage. During childbearing years, women are relatively heavy users of health care, but women are healthier in the long run and they predominate in the numbers of the elderly.

39 Urban vs. Rural Studies sometimes find differences in health care usage due to rural status. If rural residents use less care, the reasons why are not necessarily clear. Rural dwellers may differ culturally, and some analysts argue that this factor is more important to one s perception of life than ethnicity is.

40 Education Education is strongly associated with better health. If you are a college student, the odds are very good that you are healthier than your non-college counterparts. As in the demand for health capital model, this may be because you are a more efficient producer of health, you are less likely to smoke, and you are more likely to eat a healthful diet.

41 Age, Health Status and Uncertainty Older people consume three to four times more health care than the younger population. Wedig (1988) finds that the price elasticity of the decision to seek health care tends to be lower in absolute value for those with poorer health status, regardless of which measure is used to record health status. Finally, uncertainty will affect health care demand. When a consumer, worried about a future health risk, seeks advice or preventive treatment, we call this a precautionary demand (Picone, Uribe, and Wilson, 1998).

42 EMPIRICAL MEASUREMENTS OF DEMAND ELASTICITIES Table 9-2 Price Elasticities from Selected Studies

43 Table 9-4 Income Elasticities from Selected Studies

44 Income Elasticities Across Countries An early cross-national study published by Newhouse (1977) found elasticity estimates ranging from 1.15 to Parkin and colleagues (1987) pointed out several potential weaknesses in most existing crossnational studies, but despite their objections, offered improved results that tended to support the finding of cross-national income elasticities greater than 1.0. Gerdtham et al. (1992) and Getzen and Poullier (1992) also lend support to the result.

45 CONCLUSIONS Key Concepts Demand theory is crucial to our understanding of health care markets. The substantial increases in out-of-pocket costs for prescription products experienced by many patients have affected utilization of drugs in the expected negative direction. Time and distance can also be important as theory suggests.

Unit 2: Theory of Consumer Behaviour

Unit 2: Theory of Consumer Behaviour Name: Unit 2: Theory of Consumer Behaviour Date: / / Notations and Assumptions A consumer, in general, consumes many goods; but for simplicity, we shall consider the consumer s choice problem in a situation

More information

1) The demand for cosmetic surgery is more elastic than the demand for Botox treatments.

1) The demand for cosmetic surgery is more elastic than the demand for Botox treatments. File: c02; : Demand and Supply True/False 1) The demand for cosmetic surgery is more elastic than the demand for Botox treatments. Answer: False Response: The demand for Botox treatments is more elastic

More information

Chapter 4 DEMAND. Essential Question: How do we decide what to buy?

Chapter 4 DEMAND. Essential Question: How do we decide what to buy? Chapter 4: Demand Section 1 Chapter 4 DEMAND Essential Question: How do we decide what to buy? Key Terms demand: the desire to own something and the ability to pay for it law of demand: consumers will

More information

Econ 303. Weeks 3-4 Consumer Theory

Econ 303. Weeks 3-4 Consumer Theory Econ 303 Weeks 3-4 Consumer Theory CHAPTER 3 OUTLINE 3.1 Consumer Preferences 3.2 Budget Constraints 3.3 Consumer Choice 3.4 Revealed Preference 3.5 Marginal Utility and Consumer Choice Consumer Behavior

More information

1. Explain 2. Describe 3. Create 4. Interpret

1. Explain 2. Describe 3. Create 4. Interpret Law of Demand Section:- B Objectives 1. Explain the law of demand. 2. Describe how the substitution effect and the income effect influence decisions. 3. Create a demand schedule for an individual and a

More information

ECON 115. Industrial Organization

ECON 115. Industrial Organization ECON 115 Industrial Organization 1. Linear (3rd Degree) Price Discrimination First Hour QUIZ Second Hour Introduction to Price Discrimination Third-degree price discrimination Two Rules Examples of price

More information

Econ190 May 1, No baseball caps are allowed (turn it backwards if you have one on).

Econ190 May 1, No baseball caps are allowed (turn it backwards if you have one on). Heather Krull Final Exam Econ190 May 1, 2006 Name: Instructions: 1. Write your name above. 2. No baseball caps are allowed (turn it backwards if you have one on). 3. Write your answers in the space provided

More information

Chapter 1- Introduction

Chapter 1- Introduction Chapter 1- Introduction A SIMPLE ECONOMY Central PROBLEMS OF AN ECONOMY: scarcity of resources problem of choice Every society has to decide on how to use its scarce resources. Production, exchange and

More information

Economics 101 Midterm Exam #1. February 27, Instructions

Economics 101 Midterm Exam #1. February 27, Instructions Economics 101 Spring 2008 Professor Wallace Economics 101 Midterm Exam #1 February 27, 2008 Instructions Do not open the exam until you are instructed to begin. You will need a #2 lead pencil. If you do

More information

Short-Run Versus Long-Run Elasticity (pp )

Short-Run Versus Long-Run Elasticity (pp ) Short-Run Versus Long-Run Elasticity (pp. 38-46) Price elasticity varies with the amount of time consumers have to respond to a price Short-run demand and supply curves often look very different from their

More information

Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied $ $ $ $ $10 2 8

Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied $ $ $ $ $10 2 8 Econ 101 Summer 2005 In class Assignment 2 Please select the correct answer from the ones given Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied $ 2 18 3 $ 4 14 4 $ 6 10 5 $ 8 6 6 $10 2 8

More information

Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2

Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2 Economics 2 Spring 2016 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 2 1.a. Recall that the price elasticity of supply is the percentage change in quantity supplied divided

More information

Theory of Consumer Behavior First, we need to define the agents' goals and limitations (if any) in their ability to achieve those goals.

Theory of Consumer Behavior First, we need to define the agents' goals and limitations (if any) in their ability to achieve those goals. Theory of Consumer Behavior First, we need to define the agents' goals and limitations (if any) in their ability to achieve those goals. We will deal with a particular set of assumptions, but we can modify

More information

University of Toronto June 14, ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 1

University of Toronto June 14, ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 1 Department of Economics Prof. Gustavo Indart University of Toronto June 14, 2007 SOLUTION ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 1 A LAST NAME FIRST NAME STUDENT NUMBER SECTION ( Morning or

More information

Text transcription of Chapter 4 The Market Forces of Supply and Demand

Text transcription of Chapter 4 The Market Forces of Supply and Demand Text transcription of Chapter 4 The Market Forces of Supply and Demand Welcome to the Chapter 4 Lecture on the Market Forces of Supply and Demand. This is the longest chapter for Unit 1, with the most

More information

Seyda Yildiz ID #: Assignment 2 (each question is worth of 3.5 points) (due on Tuesday, May 22)

Seyda Yildiz ID #: Assignment 2 (each question is worth of 3.5 points) (due on Tuesday, May 22) CECN 104 Name: Seyda Yildiz ID #: Assignment 2 (each question is worth of 3.5 points) (due on Tuesday, May 22) 1. Which of the following statements is correct? A. Utility and usefulness are synonymous.

More information

Criticism of Indifference Curve Theory

Criticism of Indifference Curve Theory Criticism of Indifference Curve Theory In today s lecture we will discuss about criticisms of Indifference curve theory. The objective of this lesson is to find out, or to learn about the defects of Indifference

More information

Eastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester

Eastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester Duration: 50 minutes Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2016-17 Fall Semester ECON101 - Introduction to Economics I Quiz 2 Answer Key 16 December

More information

Chapter 3 Investment in Skills (Theory of Human Capital Education and On-The-Job Training) Economics 136 Julian Betts

Chapter 3 Investment in Skills (Theory of Human Capital Education and On-The-Job Training) Economics 136 Julian Betts Chapter 3 Investment in Skills (Theory of Human Capital Education and On-The-Job Training) Economics 136 Julian Betts 1 Main Questions 1) What determines optimal amount of education people obtain? 2) What

More information

Econ103_Midterm (Fall 2016)

Econ103_Midterm (Fall 2016) Econ103_Midterm (Fall 2016) Total 50 Points. Multiple Choice Identify the choice that best completes the statement or answers the question. 1 point for each question. Total 15 pts. c 1. Which of the following

More information

Page 1. AP Economics Mid-Term January 2006 NAME: Date:

Page 1. AP Economics Mid-Term January 2006 NAME: Date: AP Economics Mid-Term January 2006 NAME: Date: 1. Rationality, in the case of firms, is taken to mean that they strive to A. maximize profits. B. charge the highest possible price. C. maximize revenues.

More information

Study Guide Final Exam, Microeconomics

Study Guide Final Exam, Microeconomics Study Guide Final Exam, Microeconomics 1. If the price-consumption curve of a commodity slopes downward how can you tell whether the consumer spends more or less on this commodity from her budget (income)?

More information

Assignment 2 Due on October 25 th (in class) * Please bring your answers in a big gray scantron answer sheet

Assignment 2 Due on October 25 th (in class) * Please bring your answers in a big gray scantron answer sheet ECON 202-510 Fall 2007 Raul Ibarra-Ramirez Assignment 2 Due on October 25 th (in class) * Please bring your answers in a big gray scantron answer sheet MULTIPLE CHOICE. Choose the one alternative that

More information

Your Name: UM uniquename. Ford School of Public Policy 555: Microeconomics A Fall 2011 Placement Exam Professor Kevin Stange

Your Name: UM uniquename. Ford School of Public Policy 555: Microeconomics A Fall 2011 Placement Exam Professor Kevin Stange Your Name: UM uniquename Ford School of Public Policy 555: Microeconomics A Fall 2011 Placement Exam Professor Kevin Stange This exam has 8 questions and spans the topics we expect to cover in the course.

More information

Eastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester. ECON 101 Mid term Exam

Eastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester. ECON 101 Mid term Exam Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2014 15 Fall Semester ECON 101 Mid term Exam Type A 28 November 2014 Duration: 90 minutes Name Surname: Group

More information

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2013 First Hour Exam Version 1

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2013 First Hour Exam Version 1 Introduction to Agricultural Economics Agricultural Economics 105 Spring 2013 First Hour Exam Version 1 Name Section There is only ONE best correct answer per question. Place your answer on the attached

More information

LECTURE NOTES ON MICROECONOMICS

LECTURE NOTES ON MICROECONOMICS LECTURE NOTES ON MICROECONOMICS ANALYZING MARKETS WITH BASIC CALCULUS William M. Boal Part : Consumers and demand Chapter 3: Preferences and utility Section 3.1: Preferences and indifference curves Bundles.

More information

Economics MCQ (1-50) GAT Subject Management Sciences.

Economics MCQ (1-50) GAT Subject Management Sciences. Economics MCQ (1-50) GAT Subject Management Sciences www.accountancyknowledge.com 51. If a 5% increase in price causes no change in total revenue, this means? (a) Demand is price inelastic (b) Demand is

More information

Chapter 4: Individual and Market Demand. Chapter : Implications of optimal choice

Chapter 4: Individual and Market Demand. Chapter : Implications of optimal choice Econ 203 Chapter 4 page 1 Overview: Chapter 4: Individual and Market Demand Chapter 4 + 5.1-5.3: Implications of optimal choice What happens if changes? What happens to individual demand if a price changes?

More information

Question # 1 of 15 ( Start time: 01:24:42 PM ) Total Marks: 1 A person with a diminishing marginal utility of income: Will be risk averse. Will be risk neutral. Will be risk loving. Cannot decide without

More information

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1 1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1 There is only ONE best, correct answer per question. Place your answer on the attached sheet.

More information

Chapter 12 outline The shift from consumers to producers

Chapter 12 outline The shift from consumers to producers Chapter 12 outline The shift from consumers to producers Resource markets are markets in which business firms demand factors of production from household suppliers. (As you can see the tables are now turned

More information

Individual & Market Demand and Supply

Individual & Market Demand and Supply Mr Sydney Armstrong ECN 1100 Introduction to Microeconomic Lecture Note (3) Individual & Market Demand and Supply The tools of demand and supply can take us a far way in understanding both specific economic

More information

Chapter 3 Outline. Consumer Theory. Chapter 3: Model of Consumer Behavior. Challenge: Why Americans Buy E-Books and Germans Do Not

Chapter 3 Outline. Consumer Theory. Chapter 3: Model of Consumer Behavior. Challenge: Why Americans Buy E-Books and Germans Do Not Chapter 3 Outline Chapter 3 Consumer Theory If this is coffee, please bring me some tea; but if this is tea, please bring me some coffee. Abraham Lincoln Challenge: Why Americans Buy E-Books and Germans

More information

Economics 203: Intermediate Microeconomics I. Sample Final Exam 1. Instructor: Dr. Donna Feir

Economics 203: Intermediate Microeconomics I. Sample Final Exam 1. Instructor: Dr. Donna Feir Last Name: First Name: Student Number: Economics 203: Intermediate Microeconomics I Sample Final Exam 1 Instructor: Dr. Donna Feir Instructions: Make sure you write your name and student number at the

More information

1 of 14 5/1/2014 4:56 PM

1 of 14 5/1/2014 4:56 PM 1 of 14 5/1/2014 4:56 PM Any point on the budget constraint Gives the consumer the highest level of utility. Represent a combination of two goods that are affordable. Represents combinations of two goods

More information

Microeconomics: Principles, Applications, and Tools

Microeconomics: Principles, Applications, and Tools Microeconomics: Principles, Applications, and Tools NINTH EDITION Chapter 5 Elasticity: A Measure of Responsiveness Learning Objectives 5.1 List the determinants of the price elasticity of demand 5.2 Use

More information

Chapter 5. Market Equilibrium 5.1 EQUILIBRIUM, EXCESS DEMAND, EXCESS SUPPLY

Chapter 5. Market Equilibrium 5.1 EQUILIBRIUM, EXCESS DEMAND, EXCESS SUPPLY Chapter 5 Price SS p f This chapter will be built on the foundation laid down in Chapters 2 and 4 where we studied the consumer and firm behaviour when they are price takers. In Chapter 2, we have seen

More information

2003/2004 SECOND EXAM 103BE/BX/BF Microeconomics, Closed part

2003/2004 SECOND EXAM 103BE/BX/BF Microeconomics, Closed part 1 2003/2004 SECOND EXAM 103BE/BX/BF Microeconomics, Closed part Note 1: Always read all the options before choosing one, and then select the best option. Sometimes the final option may read like all the

More information

Walter Nicholson, Amherst College Christopher Snyder, Dartmouth College PowerPoint Slide Presentation Philip Heap, James Madison University

Walter Nicholson, Amherst College Christopher Snyder, Dartmouth College PowerPoint Slide Presentation Philip Heap, James Madison University Intermediate Microeconomics and Its Application 11th edition by Walter Nicholson, Amherst College Christopher Snyder, Dartmouth College PowerPoint Slide Presentation Philip Heap, James Madison University

More information

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2015 First Hour Exam Version 1

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2015 First Hour Exam Version 1 1 Introduction to Agricultural Economics Agricultural Economics 105 Spring 2015 First Hour Exam Version 1 Name Section There is only ONE best, correct answer per question. Place your answer on the attached

More information

ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 ECON 101 Introduction to Economics1 Session 8 Consumer Choice Theory Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of Education School

More information

Chapter 2. Practice Quiz -

Chapter 2. Practice Quiz - Chapter 2 II. Demand A. Demand Shifters 1. Income 2. Prices of Related Goods 3. Advertising and Consumer Tastes 4. Popolation 5. Consumer Expectations 6. Other Factors B. The Demand Function C. Consumer

More information

This exam contains 13 pages (including this cover page) and 17 questions. Check to see if any pages are missing.

This exam contains 13 pages (including this cover page) and 17 questions. Check to see if any pages are missing. ECON 001 Fall 2016 Final Exam December 21, 2016 Time Limit: 120 Minutes Name (Print): Recitation Section: Name of TA: This exam contains 13 pages (including this cover page) and 17 questions. Check to

More information

Gregory Clark Econ 1A, Fall 2000 FINAL VERSION #1. A total of 100 points are possible. Last Name: First Name:

Gregory Clark Econ 1A, Fall 2000 FINAL VERSION #1. A total of 100 points are possible. Last Name: First Name: Gregory Clark Econ 1A, Fall 2000 FINAL VERSION #1 A total of 100 points are possible. Last Name: First Name: Your Student ID Number: - - Part A: Multiple Choice Questions (20 questions, each of which is

More information

iii

iii Foreword 1.. I NTRODUCTION I N 1 1.1 A Simple Economy 1 1.2 Central Problems of an Economy 2 1.3 Organisation of Economic Activities 4 1.3.1 The Centrally Planned Economy 4 1.3.2 The Market Economy 5 1.4

More information

Sample Midterm 2 questions

Sample Midterm 2 questions Economics 1A, Fall 2012 Gregory Clark Sample Midterm 2 questions 1. In India cheap food is distributed by the government from special stores. Poor people have to wait in long lines to get this food. Will

More information

Chapter 11 Markets for Factors of Production

Chapter 11 Markets for Factors of Production Chapter 11 Markets for Factors of Production Chapter Outline 11. 11. 11. 11. 1. 2. 3. 4. The Market for Other Factors of Production: Physical Capital and Land Modified by Key Ideas Key Ideas 1. The three

More information

Compensating Wage Differentials

Compensating Wage Differentials Compensating Wage Differentials Mariola Pytlikov√° and UniversityOstrava, CReAM, IZA, CCP and CELSI Info about lectures: http://home.cerge-ei.cz/munich/labor15/ Office hours: by appointment Contact: Email:

More information

UNIT 4 PRACTICE EXAM

UNIT 4 PRACTICE EXAM UNIT 4 PRACTICE EXAM 1. The prices paid for resources affect A. the money incomes of households in the economy B. the allocation of resources among different firms and industries in the economy C. the

More information

Topics in Labor Supply

Topics in Labor Supply Topics in Labor Supply Derivation of Labor Supply Curve What happens to hours of work when the wage rate increases? In theory, we don t know Consider both substitution and income effects. As the wage rate

More information

Chapter 17: Labor Markets

Chapter 17: Labor Markets Chapter 17: Labor Markets Econ 102: Introduction to Microeconomics 1 1.1 Goals of this class Goals of this class Learn how employment and wages are determined in equilibrium. Learn what can shift labor

More information

Econ 300: Intermediate Microeconomics, Spring 2014 Final Exam Study Guide 1

Econ 300: Intermediate Microeconomics, Spring 2014 Final Exam Study Guide 1 Econ 300: Intermediate Microeconomics, Spring 2014 Final Exam Study Guide 1 Chronological order of topics covered in class (to the best of my memory). Introduction to Microeconomics (Chapter 1) What is

More information

Commerce 295 Midterm Answers

Commerce 295 Midterm Answers Commerce 295 Midterm Answers October 27, 2010 PART I MULTIPLE CHOICE QUESTIONS Each question has one correct response. Please circle the letter in front of the correct response for each question. There

More information

ECON MACROECONOMIC PRINCIPLES Instructor: Dr. Juergen Jung Towson University. J.Jung Chapter Introduction Towson University 1 / 69

ECON MACROECONOMIC PRINCIPLES Instructor: Dr. Juergen Jung Towson University. J.Jung Chapter Introduction Towson University 1 / 69 ECON 202 - MACROECONOMIC PRINCIPLES Instructor: Dr. Juergen Jung Towson University J.Jung Chapter 2-4 - Introduction Towson University 1 / 69 Disclaimer These lecture notes are customized for the Macroeconomics

More information

This is what we call a demand schedule. It is a table that shows how much consumers are willing and able to purchase at various prices.

This is what we call a demand schedule. It is a table that shows how much consumers are willing and able to purchase at various prices. Demand Market: an institution or mechanism, which brings together buyers ("demanders") and sellers ("suppliers") of particular goods and services. The remainder of this unit assumes a perfectly competitive

More information

Elasticity and Its Applications

Elasticity and Its Applications Elasticity and Its Applications 1. In general, elasticity is a. a measure of the competitive nature of a market. b. the friction that develops between buyer and seller in a market. c. a measure of how

More information

This exam contains 15 pages (including this cover page) and 17 questions. Check to see if any pages are missing.

This exam contains 15 pages (including this cover page) and 17 questions. Check to see if any pages are missing. ECON 001 Fall 2016 Final Exam December 21, 2016 Time Limit: 120 Minutes Name (Print): Recitation Section: Name of TA: This exam contains 15 pages (including this cover page) and 17 questions. Check to

More information

sample test 3 - spring 2013

sample test 3 - spring 2013 sample test 3 - spring 2013 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. A natural monopoly occurs when a. the product is sold in its

More information

CHAPTER 4, SECTION 1

CHAPTER 4, SECTION 1 DAILY LECTURE CHAPTER 4, SECTION 1 Understanding Demand What Is Demand? Demand is the willingness and ability of buyers to purchase different quantities of a good, at different prices, during a specific

More information

Ecn Intermediate Microeconomic Theory University of California - Davis June 11, 2009 Instructor: John Parman. Final Exam

Ecn Intermediate Microeconomic Theory University of California - Davis June 11, 2009 Instructor: John Parman. Final Exam Ecn 100 - Intermediate Microeconomic Theory University of California - Davis June 11, 2009 Instructor: John Parman Final Exam You have until 8pm to complete the exam, be certain to use your time wisely.

More information

Chapter 4. Elasticity. In this chapter you will learn to. Price Elasticity of Demand

Chapter 4. Elasticity. In this chapter you will learn to. Price Elasticity of Demand Chapter 4 Elasticity In this chapter you will learn to 1. Explain the meaning of price elasticity of demand and how it is measured. 2. Describe the relationship between demand elasticity and total expenditure.

More information

UNIVERSITY OF CALIFORNIA

UNIVERSITY OF CALIFORNIA UNIVERSITY OF CALIFORNIA IAS 106 FALL SEMESTER, 2003 Campus: Berkeley INTERNATIONAL AREA STUDIES PROGRAM Intermediate Microeconomic Theory Maximilian Auffhammer The Final Exam (Time: 180 Minutes) Instructions

More information

Intermediate Microeconomics 301 Problem Set # 2 Due Wednesday June 29, 2005

Intermediate Microeconomics 301 Problem Set # 2 Due Wednesday June 29, 2005 Intermediate Microeconomics 301 Problem Set # 2 Due Wednesday June 29, 2005 1. A new chemical cleaning solution is introduced to the market. Initially, demand is Q D = 100 + 2p p 2 and supply is Q S =

More information

Economics 448W, Notes on the Classical Supply Side Professor Steven Fazzari

Economics 448W, Notes on the Classical Supply Side Professor Steven Fazzari Economics 448W, Notes on the Classical Supply Side Professor Steven Fazzari These notes cover the basics of the first part of our classical model discussion. Review them in detail prior to the second class

More information

Chapter 4: Understanding Demand

Chapter 4: Understanding Demand SCHS SOCIAL STUDIES What you need to know UNIT TWO 1. What a competitive market is and how it is described by the supply and demand model 2. What a supply curve shows 3. The difference between a movement

More information

Introduction. Consumer Choice 20/09/2017

Introduction. Consumer Choice 20/09/2017 Consumer Choice Introduction Managerial Problem Paying employees to relocate: when Google wants to transfer an employee from its Seattle office to its London branch, it has to decide how much compensation

More information

Economic Growth in Cities. Economics 312 Martin Farnham

Economic Growth in Cities. Economics 312 Martin Farnham Economic Growth in Cities Economics 312 Martin Farnham Basic Questions What causes growth/decline of cities? What are labour market implications of growth? How can public policy promote/manage growth?

More information

Managerial Economics 2013 Block Course by MFZ,TUT CH 3& 4 in your text book. Please you need text book okay??

Managerial Economics 2013 Block Course by MFZ,TUT CH 3& 4 in your text book. Please you need text book okay?? CH 3& 4 in your text book. Please you need text book okay?? ! " " " #! $! % % & & & ' ( ) # % !* + % ( , % % !* + % ( ' -."/." 01. ! 2 3, ) 4 " 4 " 5 3, ) %, % ", % " " " " #!! % 3 ) ' " !* + % ( , % %

More information

PUBLIC CHOICES, PUBLIC GOODS, AND HEALTHCARE

PUBLIC CHOICES, PUBLIC GOODS, AND HEALTHCARE Chapt er 16 PUBLIC CHOICES, PUBLIC GOODS, AND HEALTHCARE Key Concepts Public Choices All economic choices are made by individuals but some are private choices and some are public choices. Private choices

More information

Econ 200 Lecture 7 January 24, 2017

Econ 200 Lecture 7 January 24, 2017 1. Learning Catalytics Session 2. Elasticity and Total Revenue Econ 200 Lecture 7 January 24, 2017 3. Cross-Price and Income Elasticities 4. Elasticity of Supply 5. Consumer & Producer Surplus 1 Total

More information

Economics 323 Microeconomic Theory Fall 2015

Economics 323 Microeconomic Theory Fall 2015 pink=a FIRST EXAM Chapter Two Economics 323 Microeconomic Theory Fall 2015 1. The equilibrium price in a market is the price where a. supply equals demand b. no surpluses or shortages result c. no pressures

More information

Midterm 2 - Solutions

Midterm 2 - Solutions Ecn 100 - Intermediate Microeconomic Theory University of California - Davis November 13, 2009 Instructor: John Parman Midterm 2 - Solutions You have until 11:50am to complete this exam. Be certain to

More information

Eastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester

Eastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2016-17 Fall Semester Duration: 110 minutes ECON101 - Introduction to Economics I Final Exam Type A 11 January

More information

What is a market? demand goods and services to satisfy their needs and wants. supply goods and services to earn profits

What is a market? demand goods and services to satisfy their needs and wants. supply goods and services to earn profits What is a market? The market for a good or service consists of all those producers willing and able to supply it and all those consumers willing and able to demand it. A market exists where there are buyers

More information

Macro Unit 1b. This is what we call a demand schedule. It is a table that shows how much consumers are willing and able to purchase at various prices.

Macro Unit 1b. This is what we call a demand schedule. It is a table that shows how much consumers are willing and able to purchase at various prices. Macro Unit 1b Demand Market: an institution or mechanism, which brings together buyers ("demanders") and sellers ("suppliers") of particular goods and services. Notice that the remainder of this unit assumes

More information

Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity CHAPTER 4 Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity CHAPTER OVERVIEW Price elasticity is one of the most useful concepts in economics. It measures the responsiveness

More information

Version #1. Midterm exam 2 November 18th, Student Name: ID# Discussion #

Version #1. Midterm exam 2 November 18th, Student Name: ID# Discussion # Econ 101-Fall 2008, Lecture 2 Professor Kelly Midterm exam 2 November 18th, 2008 Version #1 Student Name: ID# Discussion # You have 75 minutes to answer the exam. The exam contains 12 binary choice questions

More information

BACHELOR OF BUSINESS. Sample FINAL EXAMINATION

BACHELOR OF BUSINESS. Sample FINAL EXAMINATION BACHELOR OF BUSINESS Sample FINAL EXAMINATION Subject Code : ECO201 Subject Name : LABOUR ECONOMICS This examination carries 50% of the total assessment for this subject. Examiner(s) Moderator(s) Joyce

More information

Demand - the desire, ability, and willingness to buy a product.

Demand - the desire, ability, and willingness to buy a product. Demand - the desire, ability, and willingness to buy a product. The Law of Demand states that the quantity demanded of a good will be greater at lower prices than will be demanded at higher prices. Thus

More information

AP Microeconomics Chapter 7 Outline

AP Microeconomics Chapter 7 Outline I. Learning Objectives In this chapter students should learn: A. How to define and explain the relationship between total utility, marginal utility, and the law of diminishing marginal utility. B. How

More information

Practice Problem Set 5 (ANSWERS)

Practice Problem Set 5 (ANSWERS) Economics 370 Professor H.J. Schuetze Practice Problem Set 5 (ANSWERS) 1. Autos Slope=-1 Slope = -2 40 A1 U2 U1 F1 F2 20 Food a) The opportunity cost of producing one more unit of food is 2 autos foregone.

More information

Midterm Exam Managerial Economics Dr. John B. Horowitz Fall 2004

Midterm Exam Managerial Economics Dr. John B. Horowitz Fall 2004 Midterm Exam Managerial Economics Dr. John B. Horowitz Fall 2004 Choose the best answer: (right answers are shown by *) 1. If the price of gasoline is $2.00 and the price elasticity of demand is 0.5, how

More information

Introductory Microeconomics. Dr. Lisa Mohanty TUI University

Introductory Microeconomics. Dr. Lisa Mohanty TUI University Introductory Microeconomics Dr. Lisa Mohanty TUI University Supply and Demand Forces that make market economies function Determines the quantity of each good produced Demand and Supply in a competitive

More information

CLEP Microeconomics Practice Test

CLEP Microeconomics Practice Test Practice Test Time 90 Minutes 80 Questions For each of the questions below, choose the best answer from the choices given. 1. In economics, the opportunity cost of an item or entity is (A) the out-of-pocket

More information

AP Microeconomics Chapter 3 Outline

AP Microeconomics Chapter 3 Outline I. Learning Objectives In this chapter students should learn: II. Markets III. Demand A. What demand is and how it can change. B. What supply is and how it can change. C. How supply and demand interact

More information

Chapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions

Chapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions Chapter 2: The Basic Theory Using Demand and Supply Multiple Choice Questions 1. If an individual consumes more of good X when his/her income doubles, we can infer that a. the individual is highly sensitive

More information

Preview from Notesale.co.uk Page 6 of 89

Preview from Notesale.co.uk Page 6 of 89 Guns Butter 200 0 175 75 130 125 70 150 0 160 What it shows: the maximum combinations of two goods an economy can produce with its existing resources and technology; an economy can produce at points on

More information

Chapter 10 Consumer Choice and Behavioral Economics

Chapter 10 Consumer Choice and Behavioral Economics Microeconomics Modified by: Yun Wang Florida International University Spring 2018 1 Chapter 10 Consumer Choice and Behavioral Economics Chapter Outline 10.1 Utility and Consumer Decision Making 10.2 Where

More information

The Market Forces of Supply and Demand. Premium PowerPoint Slides by Ron Cronovich

The Market Forces of Supply and Demand. Premium PowerPoint Slides by Ron Cronovich C H A P T E R 4 The Market Forces of Supply and Demand Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a part of Cengage Learning, all

More information

Econ 1101 Spring 2013 Week 3. Section 038 2/6/2013

Econ 1101 Spring 2013 Week 3. Section 038 2/6/2013 Econ 1101 Spring 2013 Week 3 Section 038 2/6/2013 Announcements Homework 2 due Friday night at 11:45pm, CST 2 Agenda for today 1. The concept of elasticity 2. Related case study 3. Income elasticity of

More information

Economics 323 Microeconomic Theory Fall 2016

Economics 323 Microeconomic Theory Fall 2016 pink=a FIRST EXAM Chapter Two Economics 33 Microeconomic Theory Fall 06. The process whereby price directs existing supplies of a product to the users who value it the most is called the function of price.

More information

Economics 323 Microeconomic Theory Fall 2016

Economics 323 Microeconomic Theory Fall 2016 peach=b FIRST EXAM Chapter Two Economics 33 Microeconomic Theory Fall 06. The process whereby price directs existing supplies of a product to the users who value it the most is called the function of price.

More information

MICROECONOMICS SECTION I. Time - 70 minutes 60 Questions

MICROECONOMICS SECTION I. Time - 70 minutes 60 Questions MICROECONOMICS SECTION I Time - 70 minutes 60 Questions Directions: Each of the questions or incomplete statements below is followed by five suggested answers or completions. Select the one that is best

More information

Output per hour Ayla Leyla Yemenis Sweaters 3 2

Output per hour Ayla Leyla Yemenis Sweaters 3 2 DEU - Faculty of Business ECON 1001 Problem Sets Problem Set for Chapter 2 - The Economic Problem: Scarcity and Choice 1) Refer to Figure 2.4. The economy moves from Point B to Point D. This could be explained

More information

Microeconomics, Module 4: Consumers in the Marketplace. Practice Problems. (The attached PDF file has better formatting.) Updated: July 10, 2006

Microeconomics, Module 4: Consumers in the Marketplace. Practice Problems. (The attached PDF file has better formatting.) Updated: July 10, 2006 Microeconomics, Module 4: Consumers in the Marketplace Practice Problems (The attached PDF file has better formatting.) Updated: July 10, 2006 Exercise 4.1: Price Elasticity of Demand The price of a good

More information

Basic Economics Test #1 Study Guide

Basic Economics Test #1 Study Guide Basic Economics Test #1 Study Guide Note: Below is a list of study questions for the upcoming Test #1. The test covers Ch. 4, 5, 6, 7 and 8 of the (Mankiw) textbook and supplementary materials presented

More information

Unit 4: Consumer choice

Unit 4: Consumer choice Unit 4: Consumer choice In accordance with the APT programme the objective of the lecture is to help You to: gain an understanding of the basic postulates underlying consumer choice: utility, the law of

More information

Demand - the desire, ability, and willingness to buy a product.

Demand - the desire, ability, and willingness to buy a product. Demand - the desire, ability, and willingness to buy a product. 1. You must have the desire for the product 2. You must be able to make a purchase 3. You must be willing to make a purchase 4. Purchases

More information

Your Name: SOLUTIONS UM ID Number. Ford School of Public Policy 555: Microeconomics A Fall 2010 Exam 1 October 6, 2010 Professor Kevin Stange

Your Name: SOLUTIONS UM ID Number. Ford School of Public Policy 555: Microeconomics A Fall 2010 Exam 1 October 6, 2010 Professor Kevin Stange Ford School of Public Policy 555: Microeconomics A Fall 2010 Exam 1 October 6, 2010 Professor Kevin Stange This exam has 8 questions and spans the topics we have covered so far in the course. Please explain

More information